Consumption shrinks big time due to demonetisation dread

With very little cash at their disposal, consumers have not only been put their leisure plans on hold, but are also cutting back on purchase of durables and appliancesRatna Bhushan&Writankar Mukherjee | ET Bureau | December 09, 2016, 10:17 IST

Image source: ThinkstockSales of consumer durables and appliances more than halved year on year in November even as the government’s demonetisation drive has severely impacted almost all consumer-facing segments from restaurants to soaps to televisions, says a study by research firm Chrome Data Analytics.

Sales of fast moving consumer goods (FMCG) dropped 22.7% year on year in November, while sales of durables and appliances dipped 54% in the same period, shows the data put together by Chrome Data’s arm Brickworks Media on the basis of retail sales numbers. Eating out was down 42.1% as consumers resisted non-discretionary spending in the aftermath of the government decision to scrap old Rs 500 and Rs 1,000 notes with immediate effect early last month, it said. Even on ecommerce space, consumers mostly opted to buy grocery products rather than smartphones and refrigerators.

“The October-December quarter is expected to see an overall 30% drop in transactions across consumer goods, durables and dining out,” said Pankaj Krishna, chief executive of Chrome Data Analytics. He expects the situation to improve in the next quarter. “We expect the outlook consumption for the next quarter to improve with the liquidity crunch easing and with steady step up in digital payments and mobile wallets,” Krishna said.

Consumer products companies said their production cycles are down more than 20% due to inventory piling up at wholesale points and destocking by the supply chain after the note ban created a cash crunch across the country.

Multinational confectionery maker Wrigley India managing director MV Natarajan said sales have dropped 15% in November over the previous month. “Ours is an impulse purchase with large traction in general trade; we’ve definitely been impacted,” he said.

Traditional trade, which has been almost entirely making transactions in cash, contributes more than 70% of FMCG sales. Continuing liquidity crunch has hit this segment even as more and more shopkeepers are adapting digital payment modes.

For categories like refrigerators, washing machines, microwave ovens and televisions, where half of the sales were transacted through cash, especially in smaller cities, the impact has been significant. “The impact in sales is across product segments, from entry-level to premium products. While footfall in city stores have improved and is at 70-80% of what it used to be, it's still down in rural markets,” said Kamal Nandi, business head at Godrej Appliances.

Chief executive of a leading white goods maker said consumer sentiments are down despite the ongoing marriage season, with maximum impact in upcountry markets where cash is the only mode of transaction. He said the industry will monitor sales for another fortnight before deciding on any major production cut.

Eating out, too, is impacted severely even though a majority of players in this segment have integrated cashless payment options or mobile-wallets into their systems. “The overall impact for the month has been 10% over the previous month. In the first week, the impact was severe but subsequently, the situation has been improving,” said Amit Burman, chairman at Lite Bite Foods that runs restaurant brands such as Punjab Grill, AsiaSeven and Street Foods of India.